Olam International

[ongweehiang]

I wonder if anyone really understand Olam businesses. You need an army of analysts to figure out what they are really doing.

The coming demerger/listing of their branded business would be make the business a little easier to digest for retail investors.

Follow us @ www.weightedresearch.com

[Shrivathsa]

In case this has already been covered, apologies.

There is a Reuters article that Olam is probably making a London IPO for 3 Billion.

https://finance.yahoo.com/news/exclusive...40308.html

There is a 3% jump in Share price today.

[Stocker]

Listings on LSE and Saudi are just talk and talk only ?

[weijian]

Listings on LSE and Saudi are just talk and talk only ?

In an IPO, the advantage is with the person who decides the timing (and subsequently the pricing). As such, the stakeholder who decides the timing has the advantage.

If the seller (Olam International) is able to decide the timing, it is advantageous to the seller and its shareholders. When food security and prices first came into vogue due to the Russia-Ukraine war in Feb2022, it made great sense to list and take advantage of it. Everything about food has slightly abated since then but as long as the seller isn't forced to list, it should make good use of its advantage to determine the timing.

[Shrivathsa]

Some updates on the listing plans. From the AGM minutes

GCEO informed the Meeting that the Board remained committed to unlocking shareholder value in
Olam by its plan to concurrently list and demerge ofi and OA from Olam. Olam was exploring and
evaluating other strategic options if its plans to list ofi and OA continued to be delayed. GCEO said that
there were 4 factors influencing Olam’s restructuring plans. The first factor was the macroeconomic
conditions, including the geopolitical state of the world (eg the Russian-Ukraine war and the Arab-Israeli
conflict). GCEO emphasised that while Olam was not in urgent need of raising capital through an initial
public offering (“IPO”) of ofi or OA, it was important that such IPO was carried out at the right time. The
second consideration influencing Olam’s restructuring plans was the condition of the IPO markets that
Olam was interested in. As a result of the Covid-19 pandemic, IPO markets around the world had slowed
down activity. However, there were suggestions that the IPO markets were picking back up. Olam was
also waiting for the regulatory approval from the Kingdom of Saudi Arabia (“KSA”) for the intended IPO
in KSA, given the significant prospects for OA’s growth in the Middle East region. The Board anticipated
that OA would experience strong interest from Middle Eastern investors in an IPO. KSA was in the
midst of implementing its regulatory regime for foreign companies to list on its market. When such
regulatory regime came into effect, OA would be the first foreign company to list in KSA. The last factor
for Olam’s consideration was the performance of its operating entities. If interest rates decreased as
predicted in H2 FY 2024, GCEO was of the view that 2025 might be the ideal time for Olam to carry out
its concurrent IPO and demerger plans for ofi and OA, subject to other conditions being met. GCEO
emphasised that the Board’s and shareholders’ commitment to implementing the concurrent IPO and
demerger plans for ofi and OA remained strong.

https://investors.sgx.com/company-disclo...MGYD9F5J5D

[Shrivathsa]

Fascinating, stock opened 10 cents up, then it turns out, Bloomberg had published an article at 9 am about Saudi Arabia buying out Olam Agri, this was on The Edge at 11 am. The SGX announcement was at 12.05 pm, to say no guarantee of any deal, stock traded further up. 

Should they not have called for a trading halt at 9 am when the Bloomberg article was published?

[weijian]

Another business restructuring + unlocking value plan by a Temasek linked company. This company had always been funded by debt and with cost of debt been much higher in recent years (and maybe more years ahead), it might make sense to use equity to retire debt and pay out the capital to your shareholders to redeploy elsewhere.

Olam to sell all other assets to focus on food ingredients business; resurfaces potential listing of unit ofi in Europe, Singapore

Olam Group will divest and monetise all assets and businesses under its remaining Olam Group operating unit over time as part of its business reorganisation plan, it said on Monday (Apr 14).

The move is part of its business reorganisation plan and will take place depending on market conditions, and regulatory and shareholder approval, the company added.

The group also plans to allocate some US$2 billion to right size the remaining Olam Group’s capital structure by de-levering its balance sheet to make it debt-free and self-sustaining. Over time, it will “responsibly divest and monetise” all of the remaining assets and businesses and progressively distribute the next proceeds to shareholders through special dividends.

https://www.businesstimes.com.sg/compani...g-unit-ofi

[CY09]

https://links.sgx.com/FileOpen/20Apr2025...eID=841725

Investors have asked and Olam have answered. It is indeed on a path of divestment and returning of proceeds. I had asked my "favourite" question of share buyback and Olam had explained why SBB then could not be done. Walking the talk, Olam has been doing SBB since then.

<Vested in Olam but Not as significant stake as YZJFH>

[weijian]

Mano in overdrive mode - would that be a red flag or not?

Olam Group's consolidated cost of debt is ~8% for FY24 (1.7bil interest expense divided by 21bil consolidated debt). To be honest, that looks pretty high to me but I did a quick check with ChatGPT and it suggest that 8% for inventory financing is actually on the low end. Nonetheless, as much as Olam Group likes to present its adjusted debt ratios by taking away debt related to inventory financing on paper, the cost of debt can't be adjusted away in practice.

FY24
Olam Group's PBIT~1.9bil
Olam invested capital = equity + debt - cash ~ 20bil
Olam's PBIT return on invested capital ~ 1.9/20~9.5%.
After accounting for the interest costs of 1.7bil, the PBT return on invested capital~1%.

Minutes of the Fourth Annual General Meeting held on 25 April 2025

Mr Manohar P Sabnani (“Mr Sabnani”) sought clarity on the uses of the funds received from the sale of OA, and when shareholders could expect to receive a special dividend as a result of the sale. GCEO said the main uses of the funds were to inject US$500 million into ofi and to make RemainCo debt-free and self-sustaining until its assets were sold. An unencumbered balance sheet would make it easier for RemainCo to divest its assets. As and when RemainCo’s assets were sold and the sale completed, the proceeds could be returned to shareholders as dividends. Mr Sabnani noted this meant there was no immediate prospect of dividends from the sale of OA; rather, this would come later as and when RemainCo implemented its divestment plan.

Mr Sabnani noted that ofi was the most profitable of the 3 operating groups, contributing 55.3% of EBIT, compared to 52.9% for OA. This was despite ofi’s revenues only comprising about 38.9% of group revenues, as compared to about 59.1% for OA. ofi therefore appeared to have better margins than OA.

Mr Sabnani observed, however, that ofi’s invested capital (“IC”) was 65.4% of group IC, compared to 25.3% for OA, and enquired why this was the case. GCEO said that ofi’s and OA’s businesses were fundamentally different, with ofi having a better margin profile than OA. The return profile of OA, on the other hand, was better than ofi’s. ofi was a smaller-volume, higher margin, capital-intensive business compared to OA. Both operating groups also had different growth prospects. All this reinforced the point that ofi and OA would appeal to different investors with different risk appetites.

Mr Sabnani enquired about the extent of debt in ofi. GCEO said that ofi’s IC as at end-2024 was about US$11 billion, of which US$9 billion comprised readily marketable inventory (“RMI”) and secured receivables. RMI was very liquid and essentially cash. Mr Sabnani said it seemed risky to hold inventory at elevated price levels; GCEO said, however, that ofi’s inventory was largely hedged with limited exposure to price movements. ofi’s nominal headline debt was therefore not particularly meaningful but we should focus on the RMI adjusted debt.

https://links.sgx.com/FileOpen/25May2025...eID=846724